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Note on Accounting Terms

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Capital is the amount of money invested by the owner in any form during the beginning of the organisation is known as capital. It can be either in the form of money or machinery or goods.

Liabilities:

The amount payable by the organization to the outsiders on the behalf of any kind of materials purchased or loans were taken is considered to be liabilities. On the basis of the time, liabilities can be classified into two types:

Long-term liabilities: The amount of liability payable after a long time i.e. normally after a period of one year is considered to be long- term liabilities. Debentures, mortgage loans, long-term loans, loan taken from the bank and financial institutions are some of the examples of long-term liabilities.

Short-term liabilities: The amount of liability normally payable within short term i.e. normally within a year is considered to be short-term liabilities. Bills payable, creditors, bank overdraft, expenses are some of the examples of short-term or current liabilities.

Assets:

The resources of the office which are purchased in the office with a motive of earning income and profit are known as assets. Such assets include material; properties and amount due from others. Such assets are classified into two types:

Fixed assets: The assets which are purchased for generating income for a long period of times called fixed. The land, building, plant and machinery, furniture are some of the examples.

Current assets: The assets which can be used or converted into cash within a period of time is called current assets. Cash in hand, cash at bank, bills receivable, debtors, marketable securities and stock are some of the examples of current assets.

Closing stock:

A number of materials or goods which remain unsold at the end of an accounting year are known as closing stock. It may be the stock of raw materials, work in progress and finished goods. The closing stock of the current fiscal year is treated as opening stock in the next fiscal year.

Debtors:

Debtors are the buyers of goods. The amount receivable from the customers against the credit sales of good is called debtors.

Creditors:

Creditors are the suppliers of goods. The amount payable to the suppliers against the credit purchase of goods is called creditors.

Bills receivable:

The amount of bill related to the credit sale drawn by the business and accepted by the debtor for paying the amount of credit sales of goods on a particular date is called bills payable.

Bills payable:

The amount of bill drawn by the creditor and accepted by the business promising in writing for paying the amount of credit purchase of goods on a particular date is called bills payable.

Debit and Credit:

Debit and credit are the two terms used for recording the financial transactions. When a financial transaction takes place, it's one account head is debited and another account head is credited.

Cash at the bank:

The amount of balance in the bank is known as cash at bank. The excess amount of deposit over withdrawal is considered as cash at the bank.

Cash in hand:

The amount of cash remained in the business on any given point of time after all the payments are called cash in hand. It includes the amount of petty cash fund and the undeposited amount of cheque.

Outstanding expenses:

The expenses which are incurred but not yet paid are called outstanding expenses. Outstanding expenses are current liabilities of the business.

Prepaid expenses:

The expenses which are paid in advance but the benefit is still remained to be consumed are called prepaid expenses. Prepaid expenses are current assets of the business.

Advanced incomes:

The incomes, which are not earned but is already received in advance, are called advanced incomes. Advance incomes are current liabilities of the business.

Accrued incomes:

The incomes which are earned but still not received are called accrued incomes. Accrued incomes are current assets of the business.

Interest:

An extra percentage of the amount paid to a money lender against the use of his/her money for a given period is known as interest. The rate of interest depends on upon the agreement made between the lender and receiver.

Loan:

The amount borrowed from the individual and financial institution with an agreement of paying a certain percentage of interest is known as a loan. Interest should be paid to person or institution on the loan borrowed.

Bank:

Bank is a financial institution, which accepts deposits from the public in different accounts and grants loans to individuals and corporations against their securities with a certain percentage of interest. The bank is classified into the Central Bank, Commercial Bank, and Development Bank.

Cheque:

Cheque is simply a piece of paper issued by the bank to its customers against their deposit for the convenience of the customers to withdraw their deposited amount. It is an unconditional order drawn upon a specified banker signed by the maker.

Bank overdraft:

When the bank gives permission to withdraw more amounts of cash beyond the limit of their bank balance, it is known bank overdraft.

Profit:

The excess amount of incomes over expenditure of the business is known as profit.